QUICK TAKE:

• President Biden vetoed a resolution aimed at repealing the SEC’s Staff Accounting Bulletin 121.
• SAB 121 mandates that financial institutions holding crypto for customers must keep these assets on their balance sheets.
• Critics argue this makes it difficult for financial institutions to collaborate with crypto companies.
• Biden emphasized the need for consumer and investor protections in his veto announcement.

U.S. President Joe Biden has vetoed a House Joint Resolution that sought to overturn the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121 (SAB 121). This controversial SEC guidance requires financial institutions holding cryptocurrency for their customers to include these assets on their own balance sheets, a measure critics say hampers collaboration between financial institutions and crypto companies.

In his statement, President Biden highlighted the importance of protecting consumers and investors, stating that he could not support measures that might jeopardize their well-being. He argued that the Republican-led resolution would unduly limit the SEC’s ability to implement necessary guardrails and address future challenges. “This reversal of the considered judgment of SEC staff in this way risks undercutting the SEC’s broader authorities regarding accounting practices,” Biden noted.

The President’s statement reiterated his previous stance on working with Congress to develop legislation that provides appropriate safeguards for the digital asset market. He stressed that these guardrails are essential to ensure the protection of consumers and investors in the rapidly evolving crypto space.

Biden’s veto came shortly after receiving letters from banking groups and members of Congress urging him to sign the resolution to overturn SAB 121. The banking organizations’ letter argued that the guidance prevents regulated banking groups from offering custody services, according to a report from the Government Accountability Office. Lawmakers also appealed to the administration to collaborate with the SEC to rescind the guidance if Biden proceeded with the veto.

Despite the resolution passing both the House and Senate with significant majorities, the President’s veto underscores the administration’s commitment to maintaining strict oversight and regulation in the crypto sector. Earlier in the day, Senator Ron Wyden (D-Ore.), who voted for the resolution, expressed concerns at CoinDesk’s Consensus 2024 conference in Austin, Texas. Wyden pointed out that the guidance creates a different standard for crypto compared to other financial assets, suggesting a need for more balanced regulatory approaches.

The SEC’s SAB 121 has been a point of contention since its introduction. Critics argue that it imposes undue burdens on financial institutions, making it challenging for them to engage with crypto companies. By requiring these institutions to hold customer crypto assets on their balance sheets, the guidance significantly impacts their financial operations and risk management strategies.

Supporters of the guidance, however, believe it is a necessary step to ensure transparency and accountability in the handling of crypto assets. They argue that without such measures, there could be increased risks to consumers and investors, potentially leading to significant financial losses and market instability.

The veto represents a broader debate within the U.S. government and financial industry about how to best regulate the burgeoning crypto market. While there is consensus on the need for regulation, the methods and extent of these regulations remain hotly debated. President Biden’s decision to veto the resolution highlights the administration’s priority on stringent regulatory measures to protect market participants and maintain financial stability.

As the crypto industry continues to grow and evolve, regulatory bodies like the SEC are likely to face ongoing challenges in crafting policies that balance innovation with risk management. The outcome of these regulatory efforts will have significant implications for the future of the crypto market and its integration into the broader financial system.

In conclusion, President Biden’s veto of the resolution to overturn SAB 121 reflects a cautious approach to crypto regulation, prioritizing consumer and investor protection over easing operational burdens on financial institutions. This decision underscores the administration’s commitment to robust regulatory frameworks as the crypto market matures.